Understanding Key U.S. Economic Indicators

Introduction

If you've been looking at the leaderboard and noticed red text next to certain dates, such as CPI, FOMC, and NFP, you may be wondering what these mean. These are three of the most significant U.S. economic news events that occur regularly. Here's a breakdown of each:

1. Non-Farm Payroll (NFP):
   
• NFP is a measure of how many people are employed in the U.S., excluding farming, private household, nonprofit, and military sectors.
• It reflects the health of the U.S. labor market. For instance, during COVID-19 in April 2020, millions of jobs were lost as seen in NFP reports, which greatly impacted the economy.
• A high NFP number means companies are hiring, showing a healthy economy, while a low number suggests economic struggles, possibly impacting markets such as gold and the U.S. dollar.
  
  
2. Consumer Price Index (CPI):
• CPI tracks the monthly change in prices paid by U.S. consumers, measuring inflation.
• It is calculated by the Bureau of Labor Statistics using a weighted average of prices for a "basket" of goods and services.
• For example, during 2022, inflation spiked to 9.1% due to stimulus spending during the pandemic. High inflation indicates rising prices, which affects the cost of everyday goods and services, and impacts financial markets.
• The Federal Reserve aims to keep inflation around 2% per year.
  
  
3. Federal Open Market Committee (FOMC):
• The FOMC controls U.S. monetary policy, specifically the federal funds rate, which is the interest rate banks charge each other for overnight loans.
• When the economy struggles (e.g., during COVID), the FOMC lowers interest rates to encourage borrowing and stimulate the economy.
• Conversely, when inflation rises, the FOMC raises interest rates to slow down the economy and control inflation. For instance, after the pandemic, the rate went from 0.25% to over 5% as inflation increased.
  
  

Why Are These Events Important?

These three events – NFP, CPI, and FOMC – are crucial indicators of the health of the U.S. economy, and they significantly impact financial markets. Large movements in asset prices often occur on these news days because they provide insights into inflation, employment, and interest rates, which are key to economic stability.